Friday, May 20, 2011

Gasoline Station Franchisor’s Market Withdrawal Did Not Violate PMPA

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A gasoline station franchisor did not violate the Petroleum Marketing Practices Act (PMPA) in connection with its withdrawal from the Puerto Rico market because its successor did not fail to comply with the PMPA’s requirement to offer franchises to the franchisees of the withdrawing franchisor in "good faith," according to the U.S. Court of Appeals in Boston.

No evidence suggested that the successor devised the franchise agreements it offered to the franchisees in the hope that they would be rejected. The federal district court ruling in favor of the franchisor (CCH Business Franchise Guide ¶14,248) was affirmed.

Unlawful Contract Provisions

Although the lower court found several provisions of the offered agreements to be unlawful under Puerto Rico law, the successor could easily have believed that the agreements would be accepted by franchisees, old and new, the appellate court observed.

The offered agreement was the successor’s standard model for renewing franchises for its own dealers, and it was buying out the original franchisor of the franchisees to expand its business.

Good Faith Requirement

The argument by the franchisees that any term violating a state law in any respect comprised a violation of the PMPA’s good faith requirement was rejected. Such a per se rule would put at risk a vast number of market withdrawals.

Moreover, the offered franchise agreements—comprising interrelated contracts spanning about 100 pages—included hundreds of clauses, of which the lower court invalidated only five in part, the court noted.

The decision is Santiago-Sepulveda v. Esso Standard Oil Co. (Puerto Rico), Inc., CCH Business Franchise Guide ¶14,604.

Further information about CCH Business Franchise Guide appears here.

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